In The NewsConcerns About Pieridae’s Financial Viability ‘Overdone,’ Conference Hears

January 29, 2020

Daily Oil Bulletin Jim Bentein Wednesday, January 29, 2020, 10:49 AM MST

The CEO of Pieridae Energy Limited told those attending an investor conference Wednesday that concerns about the company’s financial viability are overdone and Pieridae will deal with those concerns at an upcoming hearing.

Alfred Sorensen, speaking at the 23rd annual CIBC Western Institutional Investor Conference being held in Banff, said concerns expressed about the firm’s financial viability and how that may eventually add to the inventory of abandoned wells in Alberta are overblown. The company is planning to develop a $10-billion LNG export plant at Goldboro, Nova Scotia.

Critics, including Cenovus Energy Inc. and Canadian Natural Resources Limited, have suggested Pieridae could eventually become insolvent and unable to deal with oil and gas wells and other infrastructure it has purchased in Alberta.

Given the concerns expressed by several parties, the Alberta Energy Regulator (AER) has extended until Jan. 31 the deadline for public comment on applications for the transfer of approvals for Pieridae division Pieridae Alberta Productions Ltd. to acquire assets from Shell Canada Limited.

The applications are under the Oil and Gas Conservation Act, Pipeline Act, Water Act, Public Lands Act and Environmental Protection and Enhancement Act.

Addressing concerns

Sorensen told a questioner at the conference the concerns from Cenovus “have been taken care of,'' without elaborating.

“Material uncertainties exist around [Pieridae’s] ability to continue as a going concern,” Cenovus said, in a letter sent to the regulator.

CNRL also expressed concern in a letter to the AER.

“If the license transfers are allowed, there is a high probability that Pieridae will be unable to respond to circumstances should any operational, health, safety or environmental problems arise,” CNRL wrote.

The companies said the orphan well body could be stuck with a $500 million bill if Pieridae is unable to clean up its facilities.

Sorensen said the concerns from CNRL have not been resolved.

He said Pieridae will likely be ordered by the AER to pay a deposit.

“Whatever the deposit that is required, it will likely be part of the hearing,” the Pieridae CEO said. “There will be a financial settlement of some sort.”

James Millar, director of external relations for the company, told the DOB recently that the concerns from Cenovus, CNRL and others about the firm’s financial viability will be dealt with.

“We are financially strong, with a huge upside based on our Foothills asset acquisition [the very assets critics say threaten the company’s survival] and the Goldboro LNG project,” Millar wrote in an email response.

In June 2019, Pieridae announced it had signed a purchase and sale agreement to acquire all of Shell’s midstream and upstream assets in the southern Alberta Foothills for $190 million. The deal closed last October.

Concerns have been raised, including from the industry-funded Orphan Well Association (OWA). Pieridae’s Millar said the company’s finances are solid and will become more so, as it integrates the Shell assets into its operations.

“We raised capital to purchase the Shell assets for $190 million in [a] very difficult environment [for juniors],” he wrote.

He added: “What sets us apart from other pure gas-producing companies in Alberta” is the fact that the gas it will produce will be pipelined, via the [TC Energy Corporation] Mainline and related facilities to its planned Goldboro LNG plant.

“The project has the largest single sales contract in Canadian history, valued at $78 billion, with German utility giant Uniper,” which has committed to purchasing half of the project’s LNG. In addition, he said the German government is offering Pieridae a loan guarantee of US$4.5 billion.

He added that the project has strong support from the government of Nova Scotia and Pieridae has all major regulatory, environmental, import/export and construction permits in place.

The project would provide a major boost to Alberta’s natural gas sector, since most of the 800 mmcf/d for the first train would come from the province, he said. The German government has stipulated it wants the project to be fed by conventional natural gas.

In addition to the recent Shell purchase, Pieridae previously bought conventional gas producer Ikkuma Resources Corp., in an all-stock deal. It was producing 100 mmcf/d, but Pieridae believes it can boost that fivefold.

Financial commitment

Meanwhile, Sorensen told CIBC conference attendees his company is seeking a financial commitment from the federal government.

He said company officials met recently with Seamus O’Regan, minister of natural resources. Also, the fact that O’Regan is from Newfoundland, and is appreciative of the economic boost Goldboro would provide to the Maritimes, gives him some hope for a commitment from Ottawa, Sorensen added.

“Minster O’Regan has shown significant interest” in the project, he said.

Later, he said that assistance might come in the form of financial help on securing long-term agreements with Enbridge Inc., owners of the Maritimes & Northeast Pipeline, and TC Energy, owners of the Mainline, which transports Alberta gas to Eastern Canada. That gas would then be transported to Goldboro on the repurposed Maritimes & Northeast pipeline, originally built to transport offshore Nova Scotia gas to the U.S.

“We need significant capital to be spent [on the connections with both pipeline companies],” he said.

He said Uniper and its German government backers have been perplexed by the lack of a Canadian government commitment to Goldboro. Their contract with Pieridae essentially provides an assurance of about half of the $10 billion needed to develop the project.

Sorensen said that the integration of the Shell assets and former staff of the company, which include several engineers among the 200 or so employees, has given his company a boost in intellectual capital.

Shell had considered developing an inland LNG project in Alberta in the past and many of those engineers have significant LNG experience, which has proven helpful in developing Goldboro, Sorensen added.

He said his company’s biggest challenge is to raise capital amidst a short-term downturn in the LNG sector, with weak prices expected this summer. However, there will be a strong window for LNG demand after 2024, he said, which is when the first train of Goldboro should come onstream.

Also, Pieridae will be shifting its listing from the TSX Venture Exchange to the more senior TSX Exchange, which Sorensen said should facilitate capital raising. It is awaiting a final cost estimate for the project and the need to raise more financing before an FID is reached, he said.

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